11th hour VA an “abuse of process”: Court

11th hour VA an abuse of process

Accepting an appointment as a voluntary administrator (VA) the day before a court’s scheduled to hear why the company should be wound up? Gimme’ a break.

Is the market really so tough? Are appointments so scarce? Regardless, INO reckons it looks skewiff. Or stupid. Maybe both.

The circumstances upon which we have formed our opinion are to be found In the matter of Polar Agencies Pty Ltd [2019] VSC 43 (8 February 2019).

The judgment, delivered recently by Victorian Supreme Court judicial registrar Patricia Matthews, recounts the decision by Lowe Lippman partners Gideon Rathner and Matthew Sweeney to accept an appointment as VAs of the insolvent linen supplier on February 5, 2019.

A hearing of a winding up application brought by a creditor of Polar, which had already been adjourned once, was scheduled to be heard on February 6.

” … the timing of the appointment of the administrators is a relevant factor in this determination,” Registrar Matthews said.

“The originating process was filed on 16 November 2018. There was a hearing on 19 December 2018, where the winding up application was adjourned to 6 February 2019.

“The administrators were appointed at the death knell, just before that adjourned hearing. “

The registrar then invoked some existing authorities on the question of continuing administrations involving administrators being appointed right before a hearing to determine if a company should be wound up.

In Gorst Rural Supplies Pty Ltd v Glenroy (Lake Bolac) Pty Ltd [2012] VSC 60, Gardiner AsJ said: “While the interests of creditors are of course the paramount consideration in determining whether the administration should continue, I also take the view that, in addition to the absence of persuasive evidence that the administration should continue because it would be in the interests of creditors, the appointment of the administrator yesterday amounts to an abuse of the processes of Part 5.3A of the Corporations Act 2001.

“In my view, the same comments can be made here,” Registrar Matthews added helpfully.

“Further, I observe that no explanation has been given to me as to why that appointment was only made the day before the hearing.”

Then there’s this typically direct view on the practice expressed by Justice Paul Brereton In the Matter of Offshore & Ocean Engineering Pty Ltd.

“Finally, it cannot go without observation that when a manifestly insolvent company appoints voluntary administrators following resistance to a creditor’s statutory demand and the initiating of winding-up proceedings, the Court approaches with a degree of scepticism whether the appointment is not an attempt as a last resort to avoid the consequences of liquidation, ” Justice Brereton said.

In conclusion, registrar Matthews refused the application for an adjournment of the winding up hearing, ordered that the administration be terminated and that Bent & Cougle’s Hamish McKinnon be appointed liquidator.

2 Comments on "11th hour VA an “abuse of process”: Court"

  1. The wording of s 435A of the Corporations Act 2001 set out the overriding purpose of Part 5.3A.

    The obligation is upon the Administrator – if appointed in the circumstances to put before the Court relevant material as to why it is in the interests of creditors, being the relevant stakeholders after all affected, for the administration to be continued. This is part of the overriding purpose.

    It is always an issue about abuse of process but that must be considered according to the overriding purpose and the fact that control of the affairs will have passed to an independent profession with a duty to investigate and report to the stakeholders.

    • James, in the circumstances reported upon, the administrators chose not to provide the court with a supporting affidavit. That was left to their lawyer. Further, the improbability of the DoCA being proposed, one in which only the administrators would’ve been paid in full, and the overwhelming evidence of persistent insolvency, would have, one hopes, guided the registrar in her deliberations.

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